Cullen Roche of Pragmatic Capital recently joined the fray in investigating Global X Top Guru Holdings (GURU). It’s supposedly a “smart-money” ETF that invests in hedge funds’ top holdings reported in their 13F reports — and it has returned a stunning 56% since the fund went public last year.
Here’s what Roche had to say:
“I actually looked at the holdings and decided to compare the fund to what it currently holds — mostly mid-caps and 10% Europe with the rest in domestic equities. The fund’s lifetime is brief, but its performance is huge. It’s generated a 56% return in just 13 months with a standard deviation of 8.8 and a Sharpe ratio of 3.61. The mid-cap/Europe combo is up 40% with a standard deviation of 8.8 and Sharpe ratio of 2.6. The drawdowns are slightly in favor of the mid-cap/Europe combo though not by much.
I don’t know what to think here. The fund is really interesting. But it doesn’t have a long track record and I am still suspicious that we’re just looking at a beta junky fund here. In other words, is it just a suped up (sic) mid-cap fund that will get crushed when the market goes through the next big bear market?”
My two cents: It very well might be.
Granted, I’m new to the game, but when apparently any idiot can come up with a trendy concept and have the luck to do well for a while, remember that they can always lean on this little bit of legalese: “Past performance is not indicative of future results.”
- What’s under the hood? On one hand, the fund is quite transparent, updating its holdings list daily, but because of the 45-day lag in 13F reports, it’s hard to say if hedgies are actually still in the positions GURU tracks. So although the appeal of the fund is that you’re investing alongside the big guys, you’re really just chasing after them. Global X CEO Bruno del Ama recognizes this, and GURU’s rules-based system excludes hedge funds with high turnover — yet the fact remains that GURU is always going to be late to the party.
- What’s the trading volume? Very low — under 30,000 units traded daily — so it’s not terribly liquid.
- What are the costs? Costs are reasonable, at 0.75%, or $75 per $10,000 invested.
- Are there better options? InvestorPlace contributor Charles Sizemore notes that funds like these are a bit of a shortcut for people who don’t want to go through the complicated process of applying hedge fund strategies to their own portfolios. And this shortcut could take a big cut out of your returns if things don’t pan out.
Solid returns aside, I would agree that there’s just not enough track record, and point out that the fund’s market-beating 28% gain this year, while impressive, has come alongside a market itself that has boomed nearly 20% in the first seven months of the year.
Even if the strategy of chasing 13F holdings proves to be sustainable, I would sit on this idea until it shows it can weather a storm.
As of this writing, Carla Lake did not hold a position in any of the aforementioned securities.